Private sector, not PH gov’t, funding carbon reduction projects

WE DEEPLY appreciate the report of DJ Yap on the serious health implications of black soot (Inquirer, 12/2/12). It is an excellent report.

However, may we clarify that it is not the Philippine government that will invest an estimated P26 billion into the retrofitting of some 500,000 public utility vehicles, mostly jeepneys. Not a single centavo will come from the Philippine government coffers for this climate change project.

The source of funding is the international private sector—private groups, companies and foundations that are now banding together to develop a private market for funding carbon reduction projects. These entities believe that an open market will move faster than the glacial-paced international treaties like the Kyoto Protocol in reducing worldwide carbon emissions.

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The international private sector is now in the process of creating a private emissions trading market. For example, a business traveler pays for a carbon offset on one of the airlines, which money will go to carbon funds—funds generated solely for the purpose of financing emission reduction projects. When the traveler pays this fee, he expects not a financial return but a carbon emission cut. To achieve this cut, the collected fees are channeled to various climate change mitigation projects.

The unit of currency that these funds trade in are called Voluntary Emission Reduction (VER) credits. VER offers some monetary return. But monetary return on these funds takes a backseat to the carbon reduction return.

VER credits are not guaranteed by any government. They are valued by the free market, though their worth would be slightly less than the carbon development mechanism (CDM) credits imposed by the Kyoto Protocol. Many countries can appreciate the ease and facility of dealing with VER credits. Thus, it is very likely that this private instrument could be the wave of the future.

What is important to note is that the value of any emission reduction credit that is traded in the open market (as opposed to a government- or treaty-guaranteed credit) relies on certain principles, namely:

• An effectual international standard must emerge. This standard can be issued by a group like the American National Standards Institute, or equivalent groups in the European Union.

• A technically verifiable system of measuring these emissions must be imposed. The instruments used should be calibrated by internationally recognized agencies.

• There must be government protection for the sanctity of these credits (e.g., prevention of fraud). Governments must protect these instruments and their credibility in the same way they protect their currencies.